The Free Market 13, no. 6 (June 1995)
The Nafta “debate” was hardly that at all. The treaty text—the blueprint for North America’s Maastricht—didn’t appear until very late. A handful of smart economists read the text, and concluded it was an unwise political and financial merger, not free trade. Assorted groups of populists, greens, and unionists opposed the treaty too, on the vague grounds that Nafta had the feel of an insider deal.
On the other side, big government, big media, big banks, big thinktanks, and big business joined up to demand Nafta be passed on schedule. Arguments were all over the ideological map. That the Clinton White House supported it didn’t stop the Republican leadership from proclaiming its glories. The Wall Street Journal was just as passionately pro-Nafta as the New York Times. The supporters’ bottom-line message was that every respectable source likes Nafta, ergo, you’re a kook if you don’t.
These respectable sources weren’t above hurling mud at their enemies. They ridiculed and condemned anyone who raised questions about Nafta. Nafta opponents were “protectionists,” “reactionaries,” “bigots,” or in the pay of them. The episode fit the tried and true model of wartime government propaganda.
Nafta passed, Mexico’s Potemkim village evaporated, and then disaster struck. The peso was devalued, investment in Mexico dried up, Mexico hurdled itself into financial crisis. Where to turn? Where else? U.S. taxpayers were looted to the tune of $52 billion. Yet the Naftacrats have since tried to sweep history under the poncho. Nafta? What Nafta? Don’t look for the Naftacrats to remind us of how wrong they were.
According to President Clinton, “the peso would become stronger if Nafta passes because it would strengthen the Mexican economy.” Mickey Kantor said Nafta will mean “greater Mexican prosperity and stability. If Nafta is rejected, all that is lost.” On national television, Albert Gore ridiculed Ross Perot’s predictions and argued that his credibility is shot. Is Gore’s credibility shot now?
In Congress, both sides trumpeted the treaty, even people who should have known better. Richard Armey, now Majority Leader in the House, predicted that passage of Nafta would mean “the U.S. will be in on the ground floor of what promises to be one of the fast-growing ‘Latin Lions’ of the future”—except that the Lion mauled us. Passing Nafta, he said, will “preventcurrent investors and lenders from pulling their funds out of Mexico, which would seriously harm that economy and perhaps create a new debt crisis.”
D.C.’s thinktanks took the government’s line on Nafta as well. Jerry Taylor of the Cato Institute concluded his report endorsing the treaty: “the benefits of Nafta are substantial, and any honest examination of the treaty finds that Nafta liberalizes trade and generates economic growth in all participating countries.”
If we don’t pass Nafta, wrote Delal Baer of the Center for Strategic and International Studies, it would be “like an enormous rock dropped into a pond with the United States at ground zero.” But the only rock that dropped was the post-Nafta peso. The day before the devaluation, Baer praised Mexico’s leadership for building “a platform for renewed confidence and continued growth.”
Throughout the debate, the Heritage Foundation proclaimed Mexico’s “unambiguous commitment to the free market.” On the other hand, warned Heritage, citing Democratic Senator Bill Bradley, “if Nafta is rejected, there will be the immediate problem of $40 billion in flight capital leaving Mexico in a matter of weeks, probably during the middle of the Mexican presidential campaign.” No. We had to wait for Nafta for that to happen.
Paul Beckner of Citizens for a Sound Economy said “with the reforms of President Salinas,” Mexico “seems destined to join its two northern neighbors as a wealthy and modern nation.” Salinas, of course, flipped his lid, went on a one-day hunger strike, and fled the country (no doubt with his Francis Boyer Award for free-market achievements from the American Enterprise Institute). “With Nafta,” Beckner argued, “Mexican and foreign investors will feel confident to invest in Mexico, keeping the Mexican economy booming.”
But prosperity does not require a con game. It requires certain concrete institutions, like free markets, sound money, contract enforcement, and savings. When they are established, confidence follows. The pro-Nafta crowd deluded themselves into thinking a mere government-to-government agreement could make economic law a thing of the past.
Cesar Conda of the Tocqueville Institution tried a different approach. The failure to pass Nafta, he warned, would “send several million immigrants across the border.” Yet Texas border officials now report dealing with stunning levels of human traffic, and not knowing how to control it.
No one matched Alan Reynolds of the Hudson Institute for bluster and faux-certitude. Rejecting the treaty “would pose an immediate threat to U.S. manufacturing,” he wrote, and “jeopardize the wealth of many Americans, because U.S. mutual funds and pension funds have invested in Mexican stock and Treasury bills.” Oddly this same rationale was used to justify looting the American taxpayer to prop up Goldman Sachs after the peso plummeted.
The long stream of press releases from the well-funded “Nafta Network” provides an ex postchronicle of lousy predictions. Michael Walker and Steven Globerman of the Fraser Institute said that Nafta “offers economic development opportunities and immediate gains in welfare,” as well as “great hope” for “the future social and economic well-being of the hemisphere.”
Also in the “Nafta Network” was Rogelio Ramirez De la O, the publisher of the Economic Report on Mexico. He predicted that Nafta would “raise incomes immediately,” “foster restructuring of economic activity,” and generate “high growth and capital formation.” In fact, you had to be a Wall Street banker or a member of the Zedillo administration to get those benefits.
Columnists willing to echo the White House achieved instant fame. Tony Snow said “Nafta would force Mexico to liberalize its economy and promote democracy”—exactly the opposite of what’s happened. Snow—in just one column—accused Nafta’s opponents of “fatalism,” “fantasy,” “bigotry”, “jingoism,” “Know Nothingism,” and believing that “America’s greatness comes from its bloodlines.”
Stephen Chapman was gung-ho for Nafta’s central planning, and ridiculed all critics. “Rejecting Nafta because it falls short of perfection,” he said, “is like spurning Cindy Crawford because she has a mole on her lip.” One problem: Nafta’s mole was malignant. William Rusher—Did he bother to read the treaty?—concluded “the benefits of Nafta vastly outweigh minor objections to it.”
Much of this rhetoric was made in Mexico. A full-page ad in the Washington Post claimed: “Modern Mexico has made 30 years of progress in the last five years alone: building a strong, growing economy; reforming its laws and institutions; providing new schools, hospitals, and health centers for its communities.”
It’s wonderful what credit expansion and debt will do for an economy—in the short term. Even worse, supply-side writer Jude Wanniski claimed that Mexico’s “debt pyramid” is “built on honor and integrity, and is as solid as the pyramids of Egypt”!
Above the fray stood the one and only David Rockefeller. He wrote in the Wall Street Journal: “Everything is in place—after 500 years—to build a true ‘new world’ in the Western Hemisphere.” And what happens if we don’t pass Nafta? “I truly don’t think that ‘criminal’ would be too strong a word” for “rejecting Nafta.”
But it wasn’t “criminal” when Robert Rubin, once and probably future head of Goldman Sachs, stole billions from the U.S. Treasury to benefit New York investment bankers. It wasn’t criminal when the Republican leadership helped the White House unconstitutionally bypass Congress to bail out Mexico. It wasn’t criminal when the White House refused to give an accounting of its actions in the days leading up to the peso devaluation.
Such issues have deepened the fault lines in the American political landscape, and not all the results are good. Some people are blaming free trade itself for the economic catastrophe that followed Nafta. This is the reverse of the prediction of Cato’s Brink Lindsey: “if Nafta is voted down in Congress, politicians are going to run away from free trade as though it’s radioactive.” If the Nafta pushers had been honest and admitted that the treaty had nothing to do with free trade, and real free trade wouldn’t have suffered this setback.
Mexican debacle or not, the environmental side accord—the dangers of which were dismissed by this crowd—is still working its mischief. Eight powerful environmental lobbies have petitioned Nafta’s bureaucracy to overrule Congress’s plans to loosen logging restrictions. “Suspending all environmental laws for federal timber sales is a clear violation” of Nafta, they say, and they’re probably right.
Not all of Nafta’s proponents are in hiding, however. Gary Hufbauer of the Institute for International Economics has owned up to his mistakes. He had predicted that the treaty would create 130,000 jobs in America, a figure cited by every respectable source. Today Hufbauer says: “the jobs effect of Nafta is approximately zero” and the “lesson for me is to stay away from job forecasting.”
The lesson for everyone else is to be skeptical when the government claims it has a central plan to bring prosperity and joy to an entire hemisphere, and all we have to give up is money, power, and freedom.
